Gross profit method

# Gross profit method - E9-12(Gross Profit Method Mark Price...

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E9-12 (Gross Profit Method) Mark Price Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. Inventory, May 1 \$ 160,000 Purchases (gross) 640,000 Freight-in 30,000 Sales 1,000,000 Sales returns 70,000 Purchase discounts 12,000 Instructions (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. ANS: (a) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of sales. Net sales at retail = 930,000.
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Unformatted text preview: • Estimated cost of goods sold = 930,000*(1 – 30%) =651,000 • Goods available for sale at cost = 160,000 + 640,000 + 30,000 – 12,000 = 818,000 • Estimated ending inventory = 818,000 – 651,000 = 167,000 • Answer: \$167,000 • (b) Compute the estimated inventory at May 31, assuming that the gross profit is 30% of cost. • Net sales at retail = 930,000. • Estimated cost of goods sold = 930,000/(1 + 0.30) = 715,385 (rounded up) • Goods available for sale at cost = 160,000 + 640,000 + 30,000 – 12,000 = 818,000 • Estimated ending inventory = 818,000 – 715,385 = \$102,615 Answer: \$102,615...
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• Spring '06
• Unknown
• Sales, Generally Accepted Accounting Principles, Sale, \$ 160,000, \$102,615

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